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Canaccord sees possible AB InBev bid for SABMiller

Canaccord Genuity has upgraded South African brewer SABMiller from 'hold' to 'buy', saying it sees the possibility of a possible merger with Belgian-Brazilian drinks giant Anheuser-Busch InBev (ABI).

The broker has hiked its target price for SABMiller's shares from 3,000p to 3,800p, but said it sees the a 25% possibility of a bid from ABI at 4,200p a share within the next two years.

"Our view that ABI could and should bid for SABMiller to form ABSAB, first expressed three years ago, has since become more widely held in the market," Canaccord said.

"We rework our analysis and conclude that the deal is still attractive and the rationale unchanged."

It said ABI has to decide in the next 12-18 months if it wants to extend its Latin American Pepsi franchises for a further 10 years. "Doing so would all but rule out a deal, we think."

However, if it does not extend it could then bid for SABMiller, the broker predicts.

"ABI's net debt-to-EBITDA [ratio] is now approaching 2.0x and interest rates are low. Hence we believe a two-year window has now opened within which the deal will be done, or shelved for good. SABMiller's best defence would be its share price: good news for shareholders."

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